• Food inflation up to 4.7% as commodities surge
• Industry urges Bank of England not to raise rates
Retailers today blamed a surge in the cost of basic commodities for a jump in shop price inflation they fear could send customers scurrying from the high street.
The industry, which has struggled to recover from the recession after a brief renaissance last year, is expecting to face a less than sunny summer as government cuts drain consumer confidence and inflation reduces their spending power.
The British Retail Consortium said in its monthly price check that food prices in April had rocketed after wheat and other foodstuffs rose sharply and transport costs escalated following the rise in oil prices.
Food prices rose by 4.7%, ratcheting up the 4% increase in March. Non-food inflation, which includes clothing and electrical goods, slowed to 1.2% from 1.5%, according to the survey, as retailers were forced to offer discounts to keep the tills ringing. The overall effect pushed up shop price inflation to 2.5% since last year.
The consortium warned the Bank of England to maintain its freeze in base rates when it meets this week or risk a further deterioration in consumer confidence and spending.
Any fears of a rate rise appeared to be dispelled by the Bank of England governor Mervyn King during comments at a European Parliament committee this week. King said a rise in long-term rates, which govern mortgages, would be disastrous given the huge level of personal debt hanging over from the recession.
King has come under strong pressure to push up the cost of borrowing to combat a strong rise in inflation over the past year. The consumer prices index measure of inflation has risen to 4% and is expected to nudge 5% during the summer.
King has argued, with the backing of a majority of the monetary policy committee, that inflation will fall back to its 2% target next year without the need for a significant increase in rates.
A survey by the CBI echoed the gloom surrounding the retail sector after it found that retailers expect May will be the worst month for the high street in a year.
The distributive trades report, which covers the two-week period from 30 March, found that 45% of retailers saw volumes rise, while 24% said they fell.
Despite the healthy rise, retailers said it was disappointing. In a further sign of pessimism, a net balance of -18 of retailers believe sales in May will be poor for the time of year – the most negative view since September 2009. The net balance is calculated by taking the number of firms expecting a better performance and subtracting the number who expect worse.
Ian McCafferty, the CBI's chief economic adviser, said: "Despite slightly better year-on-year sales growth in April, this survey shows things are far from rosy on the high street."
Tony Dolphin, senior economist at the IPPR, said retail sales were holding up considering the falls in real incomes over the last two years. He said the sector was benefiting from consumers dipping into the savings and switching from buying services to spending on the high street, though it was not known how long this could continue.
The timing of the survey excluded the likely benefits of the royal wedding and the extra bank holiday. The data shows the consumer slowdown is hurting some sectors more than others. Grocers, department stores and furniture sellers reported sales volume growth during the last three months, but chemists and durable household goods makers said conditions had deteriorated.
The BRC said commodity price inflation was partly being absorbed by shops with offers and discounts, which accounted for about 40% of all grocery purchases.
"Overall shop price inflation edged up slightly because rising food inflation outweighed slowing non-food inflation," said BRC director general Stephen Robertson.
"But the upward pressures on food prices, which eased in March, bit back in April. The cost of world commodities, including sugar and wheat, rose even more quickly, inevitably working through to some shop prices."
Judith McKenna, Asda's chief financial officer, said shoppers remained reluctant to spend.
"Retailers are having to pull out all the stops to achieve sales growth, and this month was no exception. The squeeze on people's pockets from rising commodity prices means consumers are seeking out value wherever they can," said McKenna, who chairs the CBI Distributive Trades Panel.
"This month's survey shows sales of dearer goods, such as consumer durables, hardware and DIY, are a particular stretch for hard-pressed households."